Fiscal Year 2008
The Permanent University Fund (the "PUF") and the General Endowment Fund (the "GEF") - together the "Endowments" - experienced losses of 3.3% and 3.1%, respectively, for the fiscal year ending August 31, 2008. PUF assets totaled $11.36 billion and GEF assets totaled $6.31 billion at fiscal year end. The Intermediate Term Fund (the "ITF") experienced a loss of .71% for the full year with assets totaling $3.875 billion at fiscal year end.

While losses are never welcome, the portfolio's strategic diversification, tactical asset class weightings and utilization of 'world class' external investment managers facilitated better than Policy Portfolio Benchmark ("Benchmark") performance. The PUF outperformed its Benchmark by 1.86%, the GEF outperformed its Benchmark by 2.11%, and the ITF outperformed its Benchmark by 3.44% for the year. The outperformance was due to both tactical asset allocation and active external manager alpha.

We are also encouraged by the Endowments' relative performance. We consider our peer group to be the nation's largest university endowments and foundations, which historically has the best investment performance record of all institutional investors. For the twelve months ending June 30, 2008 (which is most peers' fiscal year end and therefore when statistics are gathered), UTIMCO ranked just below the first quartile.

Investment Strategy
As we mentioned in last year's letter, over the past year UTIMCO initiated or further emphasized several long term strategic investment themes, the effect of which is to increase:

external manager active investment management,

exposure to global economic growth particularly in the emerging markets,

In reference to UTIMCO's active external manager program, the Endowments boast a strong record in its investments in hedge funds - or less correlated and constrained managers as we have begun to refer to these mandates - over more than a decade of assembling and managing a portfolio of over 45 such managers. These investments have produced approximately 10% annual returns since inception with annual volatility of less than 6%. An important element of UTIMCO's investment strategy is to continue utilizing 'world class' investment managers with the ability to trade across multiple capital markets employing a variety of investment styles and tools.

We also believe that, despite the current financial markets turmoil and economic slowdown, strategically - over the next few decades - the less developed countries are in the midst of a long term period of global growth as billions of people are being permitted to participate in market economies. This unleashing of productive capability - driven by the human desire for a better life for themselves and their children - creates more affordable products and services, as well as greater innovation and, in turn, greater demand for those very goods and services. This virtuous cycle provides investors a fertile environment in which to reap attractive risk-adjusted returns. We also believe that global growth will be anything but linear with the disruptions and cycles difficult to predict with precision. Therefore our approach is to gradually implement our global growth investment strategies over time in a disciplined manner.

The University of Texas at Austin

A critical element of global growth is the increased demand it places on our limited natural resources such as oil and certain metals and minerals. We believe the natural resources supply chain contains many links (e.g., discovery, extraction, processing, transportation, storage, etc.) almost all of which are capital intensive and have experienced underinvestment over the past decades. We believe this presents us with attractive investment opportunities across many different aspects associated with the supply of many different natural resources. In addition, such investments should help diversify the portfolio's risk, and potentially provide protection to the overall portfolio should inflation re-emerge.

Lastly, we believe that we have a strategic advantage to seek better investment returns through prudent and cautious utilization of illiquidity risk that complements the Endowments' long term investment horizon. Illiquidity risk will only be assumed if it is deemed that the additional return expectations merit. We will ensure that there is plentiful liquidity in the Endowments to fund obligations and to weather market downturns.